10 Popular Business Models for B2B & B2C Startups to Use

Now it’s time to figure out which business model to use for your startup. In this article, we’ll talk about each of the ten business models, with current examples of popular companies that use them.

These business models don’t necessarily have to be just for startups, but can be utilized by other businesses looking to pivot and take a different approach.

In addition, after talking about the business models, we’ll also briefly provide advice at the bottom of the post on charging your customers because a lot of companies, and startups in particular, are doing it wrong. Therefore, it’s one of the most important steps to starting a startup. Don’t miss out on reading this crucial information!

The 10 startup business models we’ll cover are:

  1. Feature-based subscription
  2. Utility-based subscription
  3. User-based subscription
  4. Freemium business model
  5. Ad-based business model
  6. Time-based subscription
  7. Enterprise subscription
  8. Percentage-based Fees
  9. Listing fee business model
  10. Stand-alone products

1) Feature-Based Business Model

Feature-based models are where each tier of the subscription has more features as it gets more expensive.

A model like this can be harder to implement technologically, and requires a more established product, usually, or more skilled developers who can tie feature-usage to plans.

However, you can also just have two tiers where one is more basic and the second has more goodies.  An example of this is the service, Ship by Product Hunt, a service which lets you launch and promote your startup on their website, which ties specific features to different plans.

product hunt feature-based business model

 

2) Utility-Based Subscription

Utility-based business models are based on usage by the consumer. There are several tiers of prices based on how much of their service or product is being used. Often, it will trigger to the next tier when a threshold is met.

One example of this Amazon Web Services. You pay for what you use and that’s it. As usage increases, so will the price. That’s mainly because there’s a higher demand on their servers as usage goes up. They use this type of pricing because it usually works well for both the user and the seller.

AWS S3 Storage Usage Based Business Model

3) User-Based Subscription Model

This is a very simple business model where a user subscribes for a given period of time to the service. It can be monthly, yearly, or a different amount of time.

There are many services we see out there, such as Calend.ly, which charges a small amount of money per user. To achieve meaningful results with a pricing model such as this, you’ll usually need to have a significant user-base of paying customers. The key to your success with this is achieving high-volume.

However, there can be subscriptions that are more expensive per month. In this case, less volume is needed to achieve the same financial milestones for your startup.

Calendly Pay Per Person Business Model

4) Freemium Business Model

Freemium models allow you to use the product for free but if you want to unlock premium features via in-app purchases.

Interestingly, Calend.ly and Slack have this business model, as well, in combination with a single user-based approach. Many people use it for free until they need to unlock specific features and if they are hooked on your product, they will usually buy it.

Slack freemium business model example

 

5) Ad-Based Business Model

A lot of news and blog-based websites have this approach. They’re typical of a business model that works with high-volume traffic. This is very similar to an affiliate business model. They’re not much different, but regular ads are more targeted because of cookies, while affiliate ads are chosen by the site owner.

The unfortunate thing about this business model is that ads suck to see – well, usually. However, in my opinion, they suck even more when there are tons of ads of all different types on ONE page and it may have popups and auto-playing videos and whatnot.

This model doesn’t lend itself well to a positive user experience for most people.

Forbes, Inc, and Entrepreneur both provide such poor user experiences because they have ads like this. Thankfully, I use ad blockers.

Another type of pricing model involving ads is to remove those ads in favor of a premium subscription and ad-free experience.

Other newspaper companies like the New York Times use this business model because right now, it’s the only one they can successfully implement digitally. However, profit margins are usually pretty low for this.

Entrepreneur ad-based business model

6) Time-Based Subscription Model

You can use a time-based model with 1 month, 3 months, 6 months, and annual plans. It’s usually the most expensive on the 1-month plan (cost per month) and it’s often some percentage cheaper for each tier.

This is one of the simplest types of pricing models to produce and requires very little programming to create.

Similarly, you can create a lifetime membership as well. A plan like this is usually the cost of the annual membership times three or four and often times there’s a discount on that price.

An example of this is used by both Match.com and StartupDevKit.

StartupDevKit time-based subscription business model

7) B2B Enterprise

The enterprise business model allows you to sell a greater quantity and charge less money for companies who wish to buy from you because you’d sell it in bulk.

This type of business model works for physical products and digital products/services/memberships and usually is used for enterprise sales by selling bulk licenses of software or hardware products to large companies.

In addition, we see companies offer this option accompanied with the option for single purchases by consumers (B2C). StartupDevKit uses this as an additional business model.

StartupDevKit enterprise subscription business model for bulk sales

8) Percentage-Based Fees

This type of pricing model enables marketplace-based startups to make money when their customers do, by using a percentage-based fee.

Think of PayPal or eBay who have percentage-based fee pricing models. They were once startups, too, so it’s not just for big companies.

They’ve implemented and used pretty much the same pricing strategy since they’ve started. And while they both took a while to become profitable, they became very profitable once that happened for each of them.

In addition, there are other startups who use this model with their SaaS solutions. So let’s say your startup wants to use certain software to help them achieve more sales. This software uses a percentage-based fee to make their startup money. So when a startup makes a sale, the company with that software will get a percentage of money from the sale.

eBay percentage-based listing fee business model

9) Listing-Based with Fees

This business model works when you use listing-based fees to make money from sellers when items are being put up for sale in your marketplace.

However, this isn’t limited to just items that are being sold. It can also be used by online marketplaces selling human services and making money from each service listing via a fee.

Companies like Amazon use this, but Amazon also combines that with a monthly subscription fee for professional sellers who want to sell more than 40 items a month.

Amazon listing-based plus subscription business model

10) Stand-Alone Product

Stand-alone products can work, but you’ve got to have a great product or service that people like enough to re-buy. It doesn’t have to be digital, ether. It could be a disposable item, like Swiffer dusting cloths.

On the other hand, this can be a stand-alone product that is digital or hardware. New iterations of the product can be created to get people to re-buy after a few years. Often, businesses will have multiple product-lines so that they don’t have to rely on just one.

Microsoft used this business model for Microsoft Office before they went to Office 365. Another example of this is our smartphones. Every two years, we essentially have to upgrade because the hardware becomes out of date for the programs that are running two to three years after it’s released.

Books are another example of a stand-alone product that can be sold, whether physical or digital.

Indistractable book as stand-alone product based business model

Advice on Setting Prices

When you’re looking to sell your product or service, you don’t want to have the lowest price as your biggest selling point. You need to be better than your competition to show that competitive advantage. Otherwise, they’ll lower their prices and squash you.

Moreover, pricing is counter-intuitive.

Psychologically, most people equate pricing with worth. So the higher the price, the more valuable it’s worth.

Therefore, having the cheapest price can actually harm you, especially if that’s your differentiating factor.

Some great advice I’ve heard from top startup founders Steli Efti, Hiten Shah who host The Startup Chat Podcast is to triple whatever price you think you’re going to sell your product/service for.

I also recommend checking out this post from Sumo on How to Price a Product: A Scientific 3-Step Guide (With Calculator).

Keep the above lessons in mind as you price out your product or service and develop your pricing strategy.

Conclusion

When deciding upon startup business models, it’s important to recognize what is the best way for you to make money consistently over time with profit margins of, ideally, 40% or more. Usually that is a form of a subscription business model or a combination of that and other business models. But some startups just don’t have that kind of product to utilize that model. So you’ve got to work with what you’ve got.

It’s also important to recognize how your startup can sustainably grow with that business model. Pricing affects that too. So ideally, you should have already talked with your target customers when validating your startup idea to find out what how much they would pay for your product/service. Or, you are planning to do that.

Once you have good information from lots of people about how much they would pay, then you can play around with the business models here and see what your financial projections look like. When doing that, you’re going to want to look 6 months, 12 months, and even two years into the future so you can see your estimated gross revenue.

What business model for your startup are you using or planning to use and why? Share your thoughts in the comments below!

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Carl Potak

About Carl Potak

Carl is the Founder and CEO of StartupDevKit, a membership-based online startup incubator and accelerator.

Biography

Carl is a serial founder and has been building and growing startups since 2007. He’s been a founder, marketer, political campaign manager and consultant, startup consultant, marketing director, WordPress website creator, and a senior technical technical recruiter for a Fortune 500 recruiting firm.

In 2007, Carl started his first startup, EduDating, a dating website for students and alumni, but it unfortunately failed because the technical requirements were too great to get it off the ground then. This experience gave way to his next startup called HireTicket, a video interviewing platform, but he could not continue after his co-founder stole all of their seed money. He then went to work as a technical recruiter and shattered the firm's growth records. He wanted to continue working on startups and simultaneously started working with CoFoundersLab, the leading platform for startup founders to find other startup founders. There, he was doing social media marketing, strategy, and sales part time. After CoFoundersLab was acquired for the first time, he and the founding team left. Carl went on to become the director of marketing for the fintech startup OnTrajectory, a retirement and life planning tool. Carl consulted for other various startups and and then left OnTrajectory to start StartupDevKit.

Carl has a certification in Inbound Marketing from HubSpot Academy, a certification in Google Analytics from Google, and earned his Bachelor's Degree from Binghamton University (SUNY) in Political Science with a minor in sociology.

As a young adult, Carl achieved Eagle Scout rank in the Boy Scouts and went to college for political science and graduated from Binghamton University for his major. He worked on several high-profile campaigns in New York throughout college and after he graduated in 2008. In addition, he created and led a top-ranked tournament-winning Counter-Strike team throughout college called Performance. Carl left it once he began his last semester of college in 2008 when he decided to start his first startup, EduDating.

Interests

Aside from his passion for business, Carl enjoys hiking mountains, playing drums with his band of talented friends and family, hanging with friends and family, listening to music, politics, Magic: The Gathering, watching and following the Yankees, Marvel and DC movies and shows, and going to museums among other things.

Carl's Role in Building StartupDevKit

Most recently, Carl built StartupDevKit's Startup Incubator Platform almost entirely on his own -- with hundreds (growing to thousands) of awesome curated and original startup resources that empower founders worldwide. The platform helps people anywhere from the idea-validation stage to recently funded startups in the growth-stage. In addition, the platform currently consists of 19 verticals and about 100 subcategories.

Carl has written all of the site's blog content thus far (over 30 mostly long-form articles on startups and marketing) which has helped over 15,000 startups. StartupDevKit ranks highly among some of the other most regarded accelerators and startup blogs on Google and has several #1 listings on Google. The content he's written is used by university entrepreneurship programs, cited all over the startup industry, and even other accelerators.

Startup Survival Secrets, the book

Carl is the author of the book Startup Survival Secrets, a book he's been writing which is about the top 20 reasons why startups fail, the root causes for each of those reasons, how to prevent them, and what to do instead. He started the writing process for the book in late 2016 and aims to have it done in the first quarter of 2020.

Being that 95-99% of startup accelerator applicants don’t get accepted and 90% of startups fail overall, Carl developed both the platform and wrote the book to help the worldwide startup community so that people have greater access to resources and wisdom for startups.

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